Question 1

Which of the following statements about the budget deficit is true?

Accepted Answer

A)  In 1992, the federal budget was balanced. 
B)  In 2000, the federal budget was in surplus. 
C)  In 2004, the federal budget was in surplus. 
D)  In 2011, the federal budget was in surplus. 
A)  In 1992, the federal budget was balanced. 
B)  In 2000, the federal budget was in surplus. 
C)  In 2004, the federal budget was in surplus. 
D)  In 2011, the federal budget was in surplus.

Question 2

Using equations for public and private saving, show that saving must equal investment in a closed economy. Begin with the expression for total saving in the economy.

Accepted Answer

Start with the expression of total savin

Question 3

If you invest $10,000 in a bond that earns 8% interest per year, how many years will it take to double your money?

Accepted Answer

A)  1 year and 3 months 
B)  2 years and 6 months 
C)  8 years 
D)  8 years and 9 months 
A)  1 year and 3 months 
B)  2 years and 6 months 
C)  8 years 
D)  8 years and 9 months

Question 4

A period of economic expansion ends with a business cycle trough.

Accepted Answer

A) True 
 B)False

Question 5

If, in an economy experiencing inflation, the government decided to tax real interest income rather than nominal interest income, this change would cause the real interest rate to ________ and the equilibrium quantity of loanable funds to ________.

Accepted Answer

A)  fall; rise 
B)  fall; fall 
C)  rise; fall 
D)  rise; rise 
A)  fall; rise 
B)  fall; fall 
C)  rise; fall 
D)  rise; rise

Question 6

Equilibrium in the loanable funds market determines

Accepted Answer

A)  the nominal interest rate. 
B)  the current interest rate. 
C)  the real interest rate. 
D)  the expected interest rate. 
A)  the nominal interest rate. 
B)  the current interest rate. 
C)  the real interest rate. 
D)  the expected interest rate.

Question 7

Table 21-2
  
-Refer to Table 21-2. Using the table above, what is the approximate growth rate of real GDP from 2011 to 2012?

Accepted Answer

A)  1% 
B)  2% 
C)  3% 
D)  4% 
A)  1% 
B)  2% 
C)  3% 
D)  4%

Question 8

Explain and show graphically how an increase in household saving affects the equilibrium interest rate and the equilibrium quantity of loanable funds.

Accepted Answer

An increase in household saving increase

Question 9

An increase in the real interest rate does which of the following?

Accepted Answer

A)  reduces the demand for loanable funds 
B)  reduces saving 
C)  reduces consumption spending 
D)  increases the demand for loanable funds 
A)  reduces the demand for loanable funds 
B)  reduces saving 
C)  reduces consumption spending 
D)  increases the demand for loanable funds

Question 10

The rule of 70 states that

Accepted Answer

A)  it takes an economy 70 years to double its real GDP. 
B)  the number of years it takes an economy to double in size is 70 divided by the growth rate. 
C)  the number of years it takes an economy to double in size is the growth rate times 70. 
D)  the number of years it takes an economy to double in size is the growth rate divided by 70. 
A)  it takes an economy 70 years to double its real GDP. 
B)  the number of years it takes an economy to double in size is 70 divided by the growth rate. 
C)  the number of years it takes an economy to double in size is the growth rate times 70. 
D)  the number of years it takes an economy to double in size is the growth rate divided by 70.

Question 11

According to the "Rule of 70," how many years will it take for real GDP per capita to double when the growth rate of real GDP per capita is 5%?

Accepted Answer

A)  less than 1 year 
B)  5 years 
C)  14 years 
D)  35 years 
A)  less than 1 year 
B)  5 years 
C)  14 years 
D)  35 years

Question 12

The sum of public and private saving in an economy is equal to

Accepted Answer

A)  Y - C - T. 
B)  T - TR - G. 
C)  Y - C - G. 
D)  I - C - G. 
A)  Y - C - T. 
B)  T - TR - G. 
C)  Y - C - G. 
D)  I - C - G.

Question 13

Which of the following explains why fluctuations in real GDP have become less volatile in the United States since 1950?

Accepted Answer

A)  Services have become a smaller fraction of GDP since the 1950s. 
B)  Unemployment insurance and other government transfer programs are more prevalent since the 1950s. 
C)  The government has become more reluctant to intervene when real GDP declines and unemployment rises since the 1950s. 
D)  both B and C 
A)  Services have become a smaller fraction of GDP since the 1950s. 
B)  Unemployment insurance and other government transfer programs are more prevalent since the 1950s. 
C)  The government has become more reluctant to intervene when real GDP declines and unemployment rises since the 1950s. 
D)  both B and C

Question 14

Suppose you are an advisor to the Business Cycle Dating Committee. You are asked to look at macroeconomic data to evaluate whether the economy has entered a recession this year. Which data do you look at? How does the economy behave at the onset of a recession?

Accepted Answer

Since a recession is defined as signific

Question 15

If GDP grew 3% in 1970, 2.2% in 1971 and 2.5% in 1972 then, what is the average annual growth rate over this period?

Accepted Answer

A)  5% 
B)  4% 
C)  2.6% 
D)  -2.2% 
A)  5% 
B)  4% 
C)  2.6% 
D)  -2.2%

Question 16

An increase in the demand for loanable funds will occur if there is

Accepted Answer

A)  an increase in the real interest rate. 
B)  a decrease in the real interest rate. 
C)  an increase in expected profits from firm investment projects. 
D)  an increase in the nominal interest rate accompanied by an equal increase in inflation. 
A)  an increase in the real interest rate. 
B)  a decrease in the real interest rate. 
C)  an increase in expected profits from firm investment projects. 
D)  an increase in the nominal interest rate accompanied by an equal increase in inflation.

Question 17

If GDP is currently $13 trillion and is growing at a rate of 2.3% per year, how long will it take GDP to reach $26 trillion?

Accepted Answer

A)  about 15 years 
B)  about 17 years 
C)  about 25 years 
D)  about 30 years 
A)  about 15 years 
B)  about 17 years 
C)  about 25 years 
D)  about 30 years

Question 18

Explain why increasing the government budget deficit can decrease investment spending.

Accepted Answer

Saving must equal investment in the econ

Question 19

For the recessions in the United States since the 1950s,

Accepted Answer

A)  inflation has been nonexistent. 
B)  the inflation rate rises on average by about 2.5 percentage points 12 months after a recession begins. 
C)  the inflation rate falls on average by about 2.5 percentage points 12 months after a recession begins. 
D)  deflation occurs. 
A)  inflation has been nonexistent. 
B)  the inflation rate rises on average by about 2.5 percentage points 12 months after a recession begins. 
C)  the inflation rate falls on average by about 2.5 percentage points 12 months after a recession begins. 
D)  deflation occurs.

Question 20

What is the main difference between a consumption tax and an income tax?

Accepted Answer

A)  A consumption tax requires households to pay taxes only on the income they have left after consumption, while an income tax requires households pay taxes on all earned income before consumption. 
B)  A consumption tax requires households to pay taxes only on the income they spend, while an income tax requires households pay taxes on all earned income. 
C)  A consumption tax always generates less revenue than an income tax. 
D)  There is no difference between a consumption tax and an income tax. 
A)  A consumption tax requires households to pay taxes only on the income they have left after consumption, while an income tax requires households pay taxes on all earned income before consumption. 
B)  A consumption tax requires households to pay taxes only on the income they spend, while an income tax requires households pay taxes on all earned income. 
C)  A consumption tax always generates less revenue than an income tax. 
D)  There is no difference between a consumption tax and an income tax.

Exam 21: Economic Growth, the Financial System, and Business Cycles

Which of the following statements about the budget deficit is true?

Using equations for public and private saving, show that saving must equal investment in a closed economy. Begin with the expression for total saving in the economy.

If you invest $10,000 in a bond that earns 8% interest per year, how many years will it take to double your money?

A period of economic expansion ends with a business cycle trough.

If, in an economy experiencing inflation, the government decided to tax real interest income rather than nominal interest income, this change would cause the real interest rate to ________ and the equilibrium quantity of loanable funds to ________.

Equilibrium in the loanable funds market determines

Table 21-2 -Refer to Table 21-2. Using the table above, what is the approximate growth rate of real GDP from 2011 to 2012?

Explain and show graphically how an increase in household saving affects the equilibrium interest rate and the equilibrium quantity of loanable funds.

An increase in the real interest rate does which of the following?

The rule of 70 states that

According to the "Rule of 70," how many years will it take for real GDP per capita to double when the growth rate of real GDP per capita is 5%?

The sum of public and private saving in an economy is equal to

Which of the following explains why fluctuations in real GDP have become less volatile in the United States since 1950?

Suppose you are an advisor to the Business Cycle Dating Committee. You are asked to look at macroeconomic data to evaluate whether the economy has entered a recession this year. Which data do you look at? How does the economy behave at the onset of a recession?

If GDP grew 3% in 1970, 2.2% in 1971 and 2.5% in 1972 then, what is the average annual growth rate over this period?

An increase in the demand for loanable funds will occur if there is

If GDP is currently $13 trillion and is growing at a rate of 2.3% per year, how long will it take GDP to reach $26 trillion?

Explain why increasing the government budget deficit can decrease investment spending.

For the recessions in the United States since the 1950s,

What is the main difference between a consumption tax and an income tax?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

GDP: Measuring Total Production and Income

Unemployment and Inflation

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

If, in an economy experiencing inflation, the government decided to tax real interest income rather than nominal interest income, this change would cause the real interest rate to and the equilibrium quantity of loanable funds to .